We recently had the chance to attend the annual Wells Fargo Healthcare Conference held in Boston. It is a great event with management teams from over 100 publicly traded healthcare companies making presentations to an audience of analysts, investors, and portfolio managers. These presenting companies run the gamut from small biotechnology firms to health analytics companies to household names like Johnson & Johnson and Medtronic. We go into this conference each year with the three goals: to get a progress report on the names currently in our portfolio; to find some new potential candidates on which to focus our future research; and to learn something new about the industry.
In terms of our current holdings, we got to see managements from Johnson & Johnson, Abbott Labs, Anthem and Alcon, to name a few. JNJ kicked things off by talking about their strategies to achieve above-market growth rates in 2020. There were some puts and takes, where management highlighted some areas that need improvement while other segments simply need to maintain their leadership positions. Ashley McEvoy, Worldwide Chairman of Medical Devices, talked about how robotics is becoming an exciting area, attracting lots of interest from all sorts of investors. She cautioned that when JNJ comes to market with a product, they don’t focus on being first but rather being the best – this is consistent with what we know about the philosophy of the company. There was no mention of the pending talc or Opioid lawsuits facing the firm, however. Next, Abbott Labs appears to be firing on all cylinders. With a huge presence in many emerging markets, they are growing their revenues around 7-8% each year and their earnings in the double digits, and there are no signs of slowing down. This is evident in their stock price, which has done extremely well over the past few years. Finally, we had a bit of a let down with Alcon, a recent spinoff from Novartis. Management was unwilling to commit to various targets, giving us some pause about their confidence in the business. This will be an area that requires further research in the coming weeks.
When it came to finding some new ideas for the portfolio, three companies stood out to us out of the 15 or so presentations we attended. The first was Cerner Corporation, a firm that specializes in the digitization of medical records. Cerner can essentially offer a digital platform to large health systems so that they can begin to benefit from the utilization of health analytics. This fits into one of our core investment themes – that “big data will rule the world.” The next attention-grabber was Edwards Lifesciences, a fast-growing, innovative company that develops proprietary products and services for late stage cardiovascular disease. This is a company that is growing its top-line at 10%+ per year, however, this is reflected in its lofty valuation. Our final new idea was Encompass Group, a provider of inpatient rehab services – this is an area that will only grow given the aging demographics in the U.S. Encompass has a capable and talented management team, and the company is experiencing solid growth. Their biggest overhang at the moment is potential change to the healthcare laws that could affect their reimbursement rates. All in all, we feel good about the names we came away with and can now focus on the due diligence phase.
We also had a chance to listen to various industry experts and keynote speakers throughout the conference. One fascinating presentation was given by Gilbert Kliman, an Opthalmology expert (opthalmology = eye/vision care; don’t worry, we had to Google it, too). We’re not sure we’ve ever seen a more qualified person – he holds an undergraduate degree from Harvard, an MBA from Stanford, and an MD from UPenn. To top it off, he went on to do a residency at Wills Eye Hospital in Philadelphia, which is widely regarded as the top institution in the world in the field of Opthalmology. He talked a lot about the amazing innovation paths in this very specific field. For example, the technology behind the now popular LASIK surgery was initially developed as a semiconductor manufacturing tool back in the 80s. Fast forward to today and we’ve got some amazing AI-powered innovation. There are now apps for your phone which can effectively diagnose an eye condition with a simple photo. It’s an exciting time to be in the medical field. As you can probably tell, we absorbed a lot of information in a very short amount of time over the course of this two-day conference. The next steps will be to gather our thoughts, review our notes, and implement some of these new ideas into practice.
Thanks for reading our On the Road blog series. Check back often to see what we’re up to. You can easily subscribe to our blog by typing your e-mail in the box on the right sidebar.
This is not an offer or recommendation to buy or sell any security and does not constitute investment advice.